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CEOs gloomier than public on U.S. economy

Reuters
By Jonathan Stempel
August 13, 2008

NEW YORK (Reuters) - The vast majority of chief executives are gloomier
about U.S. economic prospects than a year earlier, and top company officials
have become more downbeat than the public at large, according to a survey
released on Wednesday.

The survey was conducted in March, when housing and credit conditions were
better than they are now. Just 83 percent of U.S. adults polled at that time
felt the economy wasn't in good shape.

The survey included 184 CEOs from the United States and 70 from other
countries. Sixty percent of respondents run companies with market values of $1
billion or more.

Americans in general soured on the economy sooner than many corporate
chiefs. Last year, 63 percent of adults thought conditions were fair or poor,
compared with 16 percent of CEOs.

A gloomy outlook may bode ill for capital spending and job growth at a time
when housing prices are falling, unemployment is rising, oil prices remain near
record highs, and many Americans say they feel like the economy is in
recession.

"One of the most significant pressures that companies face now is weak
domestic demand," Abiel Reinhart, an economist at JPMorgan Chase & Co, said
in an interview.

"Consumers are under pressure from job losses, declines in wages after the
effects of inflation, and lower household wealth resulting from weakness in
equity prices and declines in home prices," he said. "Weak domestic demand sets
up a situation where companies may need to lower production. Indeed, we've seen
lower inventories as companies reposition themselves for a more difficult
environment."

Reinhart said he wouldn't expect CEOs to feel much different now than in
March because many of the same economic themes persist.

Andrew Liveris, the CEO of Dow Chemical Co (DOW.N: Quote, Profile, Research,
Stock Buzz), told the survey that there was great economic uncertainty.

"The U.S. now faces the terrible combination of high and rising commodity
prices -- inflation -- with low demand," Liveris said. "It's a situation we've
not seen in the U.S. since the 1970s, and it makes for tremendous
uncertainty."

According to the survey, 62 percent of CEOs expect to spend more in 2009 on
energy, 58 percent see higher budgets for technology, and 55 percent plan to
spend more on raw materials.

In contrast, just 49 percent expect higher costs for health care and capital
expenses, and only about 43 percent expect higher pay for workers below the
managerial level, the survey said.

The executives were also asked what advice they would give to the next U.S.
president.

Twenty-six percent would urge the president to hold the line on taxes, while
24 percent would recommend limited or reduced regulation, and 19 percent would
favor free trade.

Improving financial sector governance was mentioned by just 4 percent, and
ending the Iraq war by 3 percent.